Forbes has run an interesting story listing factors that could work in Blockbuster’s favor and keep the company around for at least a few more quarters. While the the article is mainly targeted at bond investors that aren’t risk-averse, the reasons listing why Blockbuster could be a good short-term investment are also relevant to the home entertainment market in general.
Here are Forbes’ reasons not to write off Blockbuster completely just yet:
- Roughly one third of domestic stores generate more than three quarters of cash flow . . . With store leases on average one to two years (according to management), rapidly closing stores should leave a very profitable core store base.
- New releases represent almost two thirds of revenues. Recent deals with major studios provide Blockbuster with a “monopoly” on new releases giving the company an exclusive rental window and a head start over nimble competitors. Studios want Blockbuster to survive.
- Hollywood Video bankruptcy eliminates the largest competitor in the industry. Reduced capacity through thousands of store closings (Hollywood and local video retailers) will ultimately bring supply back in line with demand. Take a look at same store comps at Best Buy in an ex-Circuit City world.
- Blockbuster’s strong brand and brand awareness provide a key competitive advantage. Management should be successful in leveraging these assets across various forms of distribution – by mail, kiosks and electronically.
With a new or refreshed management team and some concentrated efforts, could ol’ Blockbuster still have a few rounds left in it, Insiders? Will any of you be picking up some cheap BB notes on the hopes of a quick cash-in?